Are You Able To Bring Profit From Trading Stocks That Pay Out Giant Dividends?
Lots of folks get exhilarated about the concept of receiving dividends from their market investments, and for excellent reasons too. There are some examples where a dividend can be as high as ten percent or even more for some of the smaller listed firms, and even for the larger corporations you can earn around five - 8% each year. However it isn't that straightforward to make masses of cash if you are solely investing for dividends.
If it was that straightforward to earn income, you might simply buy shares the day before a stock goes ex-dividend and then sell them the following day, by which time you are on the register and entitled to receive the dividend. Unhappily this simply does not work as the share price will virtually always fall by an identical quantity as the dividend payout.
So as an example if the share price of Company X is 100p and it pays a 5p dividend, ie five percent, then on the day it is going ex-dividend it'll surely fall to 95p. Thus if you were planning to pick up a pleasant dividend you'd be not any better off as the exact share price has fallen by an identical quantity. Indeed you may really be worse off after exchange costs and taxes are considered.
So from a trading viewpoint, it isn't a brilliant idea to dip into and out of shares just before they're on the point of going ex-dividend. However you can still earn cash if you're smart.
The key is to get a list of all of the corporations that are due to make a dividend payment in the following couple of months. Ideally this could be a complete year dividend and may be more than around three percent. Then you wish to use technical research to filter thru these corporations and find the ones that are presently oversold.
The reason is actually because many speculators will purchase into corporations that are due to pay out good-looking dividends two weeks or months before the ex-dividend date. So if the shares are oversold also then the percentages are actually in your favour the share price will start rising in the future.
You do not necessarily have to hold on for the dividend either. As an example if the share price has risen five percent and now looks to have reached a top based mostly on technical research, then you might as well sell the shares now if the dividend payout is five percent or less, and bank the five pc profit. You can reinvest the proceeds right away, while if you wait till the stock goes ex-dividend your general profit will be the same but you'll usually need to wait one or two months till the dividend is paid into your account.
So that the point is that unless you're a long term financier who is pleased to collect these dividends each year, you are often better off making an attempt to trade stocks that are paying out decent dividends in the following couple of weeks or months, and are presently oversold. That way you know that there's each chance that you'll make a good short term profit.
Article Source: FxTradingStock.com
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by: Stuart Fischer
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Date: Wed, 9 Feb 2011
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